Applied Materials, Inc.

Afterwards, there will be a question and answer session. I would now like to turn the call over to Liz Morali, Vice President of Investor Relations. Liz, you may begin.

Thank you. Good afternoon, and thank you for joining us for today's call. With me today are Gary Dickerson, President and CEO, and Bryce Hill, CFO. Before we continue, let me remind you that today's discussion contains forward-looking statements within the meaning of the federal securities laws. including predictions, estimates, projections, or other statements about future events. Actual results may differ materially from those mentioned in these forward-looking statements as a result of risks and uncertainties. Information concerning these risks and uncertainties is discussed in our most recent Form 10-K, 10-Q, and 8-K filings with the SEC. We do not intend to update any forward-looking statements. During today's call, we will also reference non-GAAP financial measures. Reconciliations of GAAP to non-GAAP results can be found in today's earnings press release and in our quarterly earnings materials, which are available on our investor relations website at ir.appliedmaterials.com. I will now turn the call over to Gary.

Thanks, Liz. In our second fiscal quarter of 2025, Applied Materials delivered strong results across the board including record earnings per share. These results reflect great execution by our teams around the world, as well as the agility and flexibility we have in our global operations and supply chain. While we are paying close attention to a highly dynamic macro environment, we have not seen significant changes in market demand. Our customers remain focused on winning the race to be first to market with transformative new technologies. Applied is working closely with our customers and partners to accelerate the industry's roadmap. We are very well positioned at major technology inflections in fast-growing areas of the market, which supports our multi-year growth trajectory. In my prepared remarks today, I'll provide our latest market outlook. I'll explain how Applied's innovative products and services are enabling fundamental advances in semiconductor technology, and I'll describe how we are translating these innovations into sustainable, profitable growth across our business. Starting with our perspective on the market, the major technology trends reshaping the global economy, including IoT, automation and robotics, electric and autonomous vehicles, and clean energy, are all built on top of advanced semiconductors. Central to our future market outlook is AI, which is the most transformative technology of our lifetimes and has almost limitless potential use cases. While we are seeing remarkable progress in AI capabilities, we are still in the early phases of a multi-decade build-out of applications and infrastructure. Large-scale deployment of AI will require major advances in computing performance and energy efficiency that can only be achieved through disruptive innovation across the technology stack. These requirements are reshaping the semiconductor roadmap and changing the way chips are designed and manufactured. The impact of AI data center innovation and investments is apparent in the wafer fab equipment market where there are significant shifts in the spending mix this year. We see investment in leading-edge foundry logic growing substantially in 2025, and we also expect spending for leading-edge DRAM to be up significantly. We see lower spending in China with investments in both DRAM and mature logic down for the year. And finally, we are seeing an uptick in NAND investment, albeit from the very low level seen over the past several years. Against this market backdrop, Applied is well positioned for 2025 and beyond. In 2024, we underperformed the market in China due to the market access restrictions imposed on U.S. companies. At the same time, outside of China, we grew faster than our peer group thanks to our strength in Leading Edge Foundry and DRAM. Trade restrictions have also had an impact on our service business. Despite these headwinds, We grew our core parts and services revenues in the low double-digit range last year and we're on track to deliver a similar growth rate in 2025. On top of our growing installed base, we are successfully increasing the portion of those systems in the field covered by higher value advanced services and comprehensive service agreements. More than two-thirds of our service revenue comes from subscriptions, and we expect this percentage to further increase in the coming years. At a company level, through 2024, Applied Materials has grown revenues for five consecutive years. This momentum continues in 2025. If we take our first half results plus our third quarter guide, revenues are up 7% year-to-date. Looking further ahead, we also believe we're in a great position for the future given the direction of the industry roadmap, our strong leadership positions at key device architecture inflections, and the unique portfolio of solutions and capabilities we provide to our customers. Customers are racing to be first to market to deliver major architecture innovations in logic, compute memory, packaging, and power devices. including next-generation gate all-around transistors, backside power delivery, 4F squared and 3D DRAM, advanced packaging, compound semiconductors for power electronics, and silicon photonics. These technology inflections grow the market for wafer fab equipment, increase the relative mix of materials engineering technologies, and provide opportunities for applied to gain market share. Advanced foundry logic is a great example of this. If we compare an advanced fab using integrated gate all around and backside power delivery architecture to the last generation of FinFET technology, Applied's revenue opportunity is approximately 30% higher for the equivalent fab capacity. In advanced DRAM, we're focused on addressing the most critical steps for next generation technologies and this has enabled us to establish a strong leadership position in this market. In 2025, we expect our revenues from advanced DRAM customers to grow more than 40% as they ramp investments in DDR5 and high bandwidth memory. Across advanced Foundry logic and DRAM, we are introducing innovative new solutions that are being rapidly adopted by the market. One example is our SIM3 Magnum etched system for advanced patterning, which has generated more than $1.2 billion of revenue since we launched the product in February 2024. Another example is our breakthrough cold field emission e-beam technology that has strong momentum in gate all around and high bandwidth memory. and supported record revenues for our process diagnostic and control business this past quarter. As we look at how the industry's roadmap is evolving, we see our broad capabilities and connected product portfolio as a major leadership strength. This gives us earlier visibility and a more holistic view of the industry's most valuable technical opportunities. It allows us to develop solutions to address those high value opportunities faster. And most importantly, it means we can deliver unique solutions by co-optimizing and combining our innovations. With the pace of technology accelerating, being first to market has incredible value for our customers and applied materials. For this reason, another key pillar of our strategy is high velocity co-innovation. Our goal is to increase the speed of developing and commercializing next-generation technologies through earlier and deeper collaboration with customers and partners. Applied's global EPIC platform is designed to support this strategy by providing unique physical and digital infrastructure to accelerate learning rates and optimize the effectiveness and efficiency of R&D resources. Construction of our new flagship R&D facility, the Epic Center in Silicon Valley, is progressing on schedule, and we expect the center to start operations in spring 2026. Before I hand over to Bryce, I'll quickly summarize. First, while we recognize that the macro environment is highly dynamic, Applied continues to deliver strong financial performance. We are not currently seeing significant changes in customer demand, and we have agility in our global operations to adapt to a range of scenarios. Second, the race to deliver high performance, energy efficient AI computing remains the dominant driver of the semiconductor industry's roadmap. Applied is best positioned as a major device architecture inflection that will enable that roadmap to be realized and third we are seeing strong traction with our high velocity co-innovation strategy where earlier and deeper collaboration with our customers and partners is enabling us to bring next generation technology to market faster than ever before now i'll turn the call over to bryce thanks gary and thank you to everyone joining us for today's call